While Aleš Michl does not advocate for Bitcoin as a primary reserve asset, he emphasizes that central banks should neither dismiss it outright nor overlook its potential implications. Instead, he believes in a methodical exploration of its risks and benefits. As part of this approach, the Czech National Bank (CNB) is considering an in-depth study of Bitcoin (BTC) within its broader reserve management strategy, as revealed by Michl, the bank’s governor.
A Rational Approach to Bitcoin in Reserve Strategy
Michl has stressed that Bitcoin should not be casually grouped with other crypto assets. In a February 19 post on X (formerly Twitter), he underscored the necessity for central bankers to investigate Bitcoin’s underlying technology and its potential applications.
“It should not be lumped together with other crypto assets. We central bankers should study it and explore the technology it is built on. Studying Bitcoin won’t harm us – on the contrary, it will strengthen us.”
This statement follows his proposal, made during the CNB’s board meeting on January 30, for the creation of a Bitcoin test portfolio. However, he has clarified that this initiative is not an endorsement of Bitcoin as a fundamental reserve asset but rather an effort to gain a deeper understanding of its volatility, risks, and possible advantages.
Bitcoin’s Volatility and Its Role in CNB’s Portfolio
While the CNB has not committed to purchasing Bitcoin, its board has approved an analysis of additional asset classes, including the cryptocurrency. This evaluation will examine Bitcoin’s feasibility, risk profile, and long-term viability as part of the CNB’s reserve strategy.
Michl acknowledges Bitcoin’s extreme price fluctuations, noting that its future value remains unpredictable—ranging from potentially zero to significant appreciation. If the CNB were to allocate even 5% of its €140 billion (approximately $146 billion) reserves to Bitcoin, it could become the first Western central bank to publicly invest in the asset. However, insider reports indicate that any exposure would be far more conservative, likely below 1% of total reserves.
In drawing a clear distinction between Bitcoin and other cryptocurrencies, Michl cautioned investors against unregulated digital assets, urging them to approach the market with due diligence. He compared today’s crypto landscape to the economic transition of the 1990s in the Czech Republic, a period marked by the emergence and collapse of numerous investment funds.
“The crypto asset market will experience similar failures and successes,” he warned, advising investors to commit only what they fully understand and can afford to lose.
Skepticism from Other European Central Bankers
Despite Michl’s open-minded stance, other European central bankers remain largely skeptical of Bitcoin’s role in official reserves. Joachim Nagel, governor of the Deutsche Bundesbank, has repeatedly highlighted the risks associated with cryptocurrency investments. Earlier this month, he likened Bitcoin to “digital tulips,” referencing the speculative frenzy and subsequent collapse of tulip prices in 17th-century Netherlands. In an interview for PLATOW Brief, Nagel asserted that reserve assets must be "safe, liquid, and transparent," adding that "Bitcoin is none of those things."
On January 30, European Central Bank (ECB) President Christine Lagarde reinforced this viewpoint by outright rejecting Michl’s suggestion of incorporating Bitcoin into the Czech Republic’s official reserves. She emphasized that Bitcoin fails to meet the ECB’s stringent criteria, which prioritize liquidity, security, and stability.
Balancing Financial Innovation with Stability
Although the Czech Republic does not use the euro, the CNB remains a part of the European Union and participates in the ECB’s General Council, chaired by Lagarde. This body provides financial policy guidance to EU member states, further complicating any independent decision the CNB might make regarding Bitcoin.
Despite the prevailing skepticism from European financial authorities, Michl remains a proponent of forward-thinking monetary strategies. In a January 29 interview with the Financial Times, he underscored the CNB’s commitment to portfolio diversification, noting that the bank already includes equities in its reserves—an approach once considered unconventional for a central bank. His long-term vision involves increasing the CNB’s investment in U.S. stocks, aiming to raise their share to 50% of the bank’s equity portfolio within the next three years, up from the current 30%.
Conclusion
Michl’s perspective highlights a growing divide among central bankers regarding Bitcoin’s place in global financial systems. While some, like the CNB governor, advocate for a nuanced and data-driven approach, others remain deeply cautious due to Bitcoin’s volatility and regulatory uncertainties. The CNB’s forthcoming analysis will provide a crucial case study in whether traditional financial institutions can integrate digital assets into their strategic frameworks without compromising fiscal stability. Regardless of its findings, this move signals a shift in central banking attitudes toward emerging financial technologies.